American tariffs on UK cars were reduced from 27.5% to 10% as part of the deal, announced yesterday (8 May) by the government. The reduction will save hundreds of millions of pounds a year for Jaguar Land Rover alone, the announcement claimed.
US president Donald Trump described the “breakthrough” trade deal, which also removed tariffs for UK steel, as an “historic agreement”, coming as both countries marked the 80th anniversary of VE Day. “With this deal, the UK joins the United States in affirming that reciprocity and fairness is an essential and vital principle of international trade,” he said, speaking in the Oval Office.
The previously announced tariffs were seen as a significant hurdle for the UK automotive sector, which has already faced serious challenges in recent years, including Brexit uncertainty, fall-out from the Covid-19 pandemic, and concerns about strict rules for zero-emission vehicle (ZEV) sales, which the government recently addressed with changes to the ZEV mandate.
The shifting international political landscape has also brought challenges for the industry, which has seen significant dips in production in recent years.
The Society of Motor Manufacturers and Traders (SMMT) hailed the reduced tariff, which will apply to a quota of 100,000 UK cars – almost the total the UK exported last year – as “great news”.
“The application of these tariffs was a severe and immediate threat to UK automotive exporters, so this deal will provide much needed relief, allowing both the industry, and those that work in it, to approach the future more positively,” said chief executive Mike Hawes.
“Government has recognised the importance of the automotive industry to UK exports and the wider economy and has worked quickly and tirelessly with US counterparts to strike an agreement. We hope that it will lead to broader and deeper cooperation that reduces barriers to trade still further, charting a path to economic growth for both nations.”
The government said that thousands of jobs had been saved by the “first-of-a-kind trade agreement”, which was announced by prime minister Keir Starmer during a visit to Jaguar Land Rover (JLR) in Solihull in the West Midlands. “This historic deal delivers for British business and British workers, protecting thousands of British jobs in key sectors including car manufacturing and steel. My government has put Britain at the front of the queue, because we want to work constructively with allies for mutual benefit rather than turning our back on the world,” he said.
The agreement, alongside the Bank of England reducing interest rates to 4.25%, offers UK carmakers and OEMs increased stability and will facilitate more accurate long-term forecasting and planning, said Cara Haffey, leader for industrials and services at professional services firm PwC UK.
“While it is still relatively early to measure the impact over time, these are likely to vary by market segment. Compounding these challenges is the fact that vehicles are discretionary, high-value purchases, and most of the UK-made cars exported to the US are premium and high-end brands,” she said.
“However, softer economic conditions supported by lower interest rates could potentially spur consumer demand.”
Mass-market vehicle makers, on the other hand, “could see sharper declines in competitiveness and volumes in the US market”, according to PwC automotive sector leader Dom Tribe, as pricing is a more sensitive lever for those companies.
“There is still an inflection point, on a case-by-case basis, as to how much automotive companies can or will be willing to flow price increases through to consumers. If tariff rates are deemed low enough, it may mean that OEMs will not look to make drastic changes to their manufacturing footprint and supply chain networks but look at other cost avoidance or reduction measures which might be able to offset some, or all, of the price uplift,” he said.
The deal was “warmly welcomed” by JLR CEO Adrian Mardell. “The car industry is vital to the UK’s economic prosperity, sustaining 250,000 jobs. We warmly welcome this deal, which secures greater certainty for our sector and the communities it supports. We would like to thank the UK and US governments for agreeing this deal at pace and look forward to continued engagement over the coming months,” he said.
The complete removal of the 25% tariff on steel is welcome news for the industry, which the government announcement recognised “was on the brink of collapse just weeks ago”.
Stephen Phipson CBE, CEO of manufacturers’ organisation Make UK, said: “Industry will welcome this announcement, which is a recognition that the government was right not to overreact and instead pursue a mature, calm and pragmatic approach to negotiations. This has paid dividends by providing immediate relief to some of our most important and strategic manufacturing sectors, which provide many thousands of highly skilled jobs which will now be protected. The business secretary in particular should be applauded for taking a realistic approach and playing a leading role at such an uncertain time, politically and economically.
“To build on today’s very positive announcement, we now need to see a comprehensive and forward-looking industrial strategy that strengthens the UK's domestic manufacturing resilience, boosts the skills supply, increases infrastructure investment and enhances our export competitiveness. By building on this momentum, government and industry together can unlock the full potential of UK manufacturing and drive sustained economic growth.”
Business and trade secretary Jonathan Reynolds said: “I am delighted our calm approach and proactive engagement with the US has resulted in this deal, which cuts tariffs for UK industry and cuts costs for businesses.
“Businesses across the country will be glad to see our approach working, but this is only the beginning. We look forward to strengthening our trading relationship with the US through a wider economic deal, which will help us to deliver on our ‘Plan for Change’ to provide economic stability and make this country fit for the future.”
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